You want to protect yourself and run your business in the easiest way possible. A good way to ensure this is to think carefully about which state you’ll incorporate in. In this article, I’ll share insight regarding how to incorporate your business somewhere other than your home state and why it might be beneficial for you.

In this article, we’ll cover:

Why you would choose another state to incorporate your business

Liability protection

Convenience

Restriction on type of business if it is in another state

Pros and cons of incorporating a business in Delaware, Nevada, Wyoming and New Mexico

Incorporating side projects or another business in different states

Why you would choose a state other than your current state to incorporate a business

It does make sense to choose your home state to incorporate a business in many cases, if not most. Although, there are a lot of reasons to incorporate other places. The two big reasons to incorporate in another state come down to liability protection and convenience.

For most business types that aren’t state-only licensed, you are able to incorporate outside the state you reside in.

Liability Protection & Convenience

The protection your business is supposed to provide your personal assets is called your corporate veil or your LLC veil. It’s one of the reasons you incorporate in the first place. You want the protection. You don’t want to lose your cars, house, or other assets.

If you’re in California and have a business entity incorporated there, about 25 to 50 percent of the time, the courts will pass right through your business entity and go straight for your personal assets.

They can even go for the assets of other people in your corporation.

This is an extremely important factor to consider, along with convenience, when decided where to implement your corporation or LLC.

States like New York and California have non-business-friendly courts and laws. However, Delaware, Nevada, Wyoming, and New Mexico have business-friendly laws and courts that will help protect yourself, protect your personal assets, and frankly protect your directors and officers as well.

Most business types can incorporate in other states, even ones that would surprise you like restaurants. The ones that can’t be incorporated across state lines usually require some sort of professional type entity from your home state, like a doctor’s office. But almost every other business that’s not professionally licensed, or some kind of a state-only licensed business, should be just fine incorporating in another state.

So, we’re talking restaurants, t-shirt businesses, manufacturers, service businesses, software–whatever–almost all of these can choose a different state than where they’re currently formed.

Here are some of the pros and cons of operating in each of the most business-friendly states.

Pros and cons of incorporating a business in Delaware

Delaware is known for being extremely business-friendly. They have a large business court infrastructure just for dealing with business cases quickly, and if you ever want to have a funded startup, VCs will almost certainly require that you set up a Delaware C-Corporation.

Around 90% of the Fortune 5000 are incorporated here! Obviously, there are some very good reasons why.

One of the biggest reasons is their massive Chancery Court system that specializes in quickly dealing with corporate legal issues. The infrastructure is there to support businesses quickly and efficiency with strong business protection and a strong business veil.

Large companies like Uber and Facebook may get sued 100 times per day. Delaware has the capacity to handle issues at a large scale, and that’s why this is the top choice for big business.

Pros of Delaware

Use the business-friendly chancery court

Prestige of owning a Delaware corporation

Protection of personal assets

Efficiency from

Not everything about Delaware is perfect for incorporating every business, however. Someone has to pay for that massive court system, so fees to incorporate here are pretty high.

You’ll also have to maintain a registered agent in Delaware (this is a service we provide for all 50 states). Then you also have to pay their “franchise tax” and file expensive annual reports.

The general complexity of filing and maintaining a Delaware business entity is a challenge as well, and most small companies don’t need this extra work, especially with some of the other states we’re going to talk about.

Cons

Adds another level of complexity

Have to pay franchise tax

More expensive in general

Fun fact: you can get expedited filings of various levels in Delaware, up to a 2-hour filing for $500 extra!

Pros and cons of incorporating a business in Nevada

Nevada built an extremely friendly shareholder set of laws. As recently as a year or two or go, the veil had only been pierced in Nevada once. Nevada represents the “wild west” in terms of business law, in sharp contrast to nearby California. This libertarian approach makes it extremely pro-business with a strong business veil.

Pros

Shareholder friendly laws

Strong protection

Don’t report certain things to the IRS

Of course, by incorporating in a state so lax that prostitution is free, you may get a bit of a stigma, depending on your type of business. Let’s just say that a Nevada-addressed corporation doesn’t carry the prestige that a Delaware one does.

Because of the rush of companies wanting to incorporate in Nevada for their lax approach to business regulation and taxes, the state has made filing a bit more expensive, so that’s another downside to the state.

Cons

Some scammy operations

Negative stigma

More expensive to incorporate here

Fun fact: all other states have reporting arrangements with the IRS, however the Nevada Secretary of State, department agencies, and taxation agencies do not. So that means they don’t report certain things to the IRS, which basically is a way for the IRS to figure out what you’re doing. This is huge for business privacy.

Pros and cons of incorporating a business in Wyoming

Wyoming created the LLC in the late 70s, based on a simplified corporation business entity concept that existed in Europe at the time. There was no such thing as an LLC not that long ago.

Wyoming also adopted extremely favorable laws for business, similar to Nevada. However, incorporating and managing a Wyoming business is much, much cheaper. It’s about ⅓ the price to incorporate and LLC in Wyoming, and about ⅙ to incorporate a C-Corp. Yearly management fees are much cheaper as well. This is one of the cheapest and safest states you can choose for your business.

Pros

Very low cost of operations

Speed to incorporate is very fast

Strong protection

Cons

Not super popular

More difficult to go get a local bank account

Certain stigma

Fun fact: a lot of people don’t know how great an opportunity it can be to incorporate in Wyoming, it’s called “Switzerland of the Rockies” and “Dick Cheney’s House of Secrets” in some circles because of the favorable business setup.

Pros and cons of incorporating a business in New Mexico

The New Mexico LLC comes with real privacy right out of the box. With an LLC in New Mexico, you don’t have to file an annual report. In fact, you don’t even have to register your name on the business, just a registered agent, which you can hire (we can help with that). There doesn’t have to be proof of any ownership by anyone!

Pros

Doesn’t list anyone on their formation documents

Unparalleled privacy

No record of who you are

As usual, nothing is perfect. If you’re not listed as the owner of your business, a bank will have a hard time verifying you own it and it could be a challenge to set up your business banking with this entity.

Cons

Banks will have a hard time verifying who you are

Fun fact: since New Mexico doesn’t require an annual report, when you file you get essentially a lifetime filing!

States to be avoided

States that tend to lean toward the left generally have less protection for businesses. More liberal states tend to be more likely to rule against a corporation and try to pierce the corporate veil.

The worst states for this of course are:

California

New York

In general, a more conservative state, like Texas or Tennessee, is going to be fairly pro business.

Starting a side project in another state

If you’re thinking of starting a project on the side, it could be great for you to research and look into a side entity. This gives you flexibility and the benefits we’ve discussed if you incorporate in one of the states above. You can set up one side LLC to manage all of your projects under, and when they take off you can split them off into their own, separate entity. We’ve written about this specifically here.

To Recap

Incorporating in another state can be really great, but it depends on the type of business and specific needs.

If you want privacy, incorporate in New Mexico.

If you want protection, incorporate in any of the states mentioned, especially Delaware and Nevada.

If you want to save money, incorporate in Wyoming.

Incorporating in a different state is incredibly easy with MyCompanyWorks!

The new tax law, called the “Tax Cut and Jobs Act” (TCJA), was signed into law on December 22, 2017 and is the largest overhaul of the US tax system since 1986. The bill is huge, and actually, in our opinion, makes many aspects of the tax code more complex rather than simpler. Some of the details are not entirely clear yet so we’re still learning more each day as the IRS implements various rules and decisions.

However, there is some very good news for small businesses (under a certain income and of a certain type of business activity) and any business that operates as a C-Corporation.

Nicknamed “The Diamond State,” Delaware is known in the startup community for its extremely business-friendly corporate laws. Its neighboring states know it as “the home of tax-free shopping,” and it’s got a thriving tourism industry – one of the most successful in the It’s also the second-smallest state in the country, with a total land area of 1,948 square miles, all of which are sparsely populated.Continue reading “The Biggest Challenge You’ll Face When Starting a Business in Delaware”

An Apostille is a certification from a US Federal or State government that allows a document from that office to be accepted in any of the countries that have signed the Apostille Convention adopted on October 5th, 1961. In the United States this typically is the Secretary of State in each US state or the US Department of State (for Federal Documents).

Purpose:

Many of our international clients who form a company in the USA may also need an an Apostille or “Certificate of Authentication” (for countries that did not participate in the Apostille Convention). This is because their home country may need to verify that the documents filed in the USA are legitimate. Many times this is so they can open a bank account or meet other business or licensing requirements in their country.

Procedure:

First, you need to have filed the original business formation document (Articles of Incorporation or Articles of Organization to create the Corporation or LLC), then you need to have that document reviewed and “stamped” with the Apostille certification as well as provide the correct filing fee (and additional expedite fee if you are in a hurry). Typically this is done in the same office of the Secretary of State where you file the business formation document. The person responsible for approving the Apostille will then review and stamp the documents and return them to you via mail or courier.

Tips:

It’s best you submit your original formation documents and Apostille request at the same time so you can save some “back and forth” time between filing departments or have to wait for the formation documents to return (only to send them right back to the same place). Otherwise, you can simply send the documents in to receive the stamp (make sure to include pre-paid envelopes or courier airbills to prevent your documents from being misplaced).

MyCompanyWorks would like to introduce our newest exclusive product: The Startup Wizard. The Startup Wizard is like a startup checklist on steroids and is personalized to your specific business entity type and state.

We used to provide our clients with a state-specific checklist in PDF format that shows them all of the “post-formation” tasks they need to complete after we formed their company. This includes tasks like opening a bank account, getting a business license or setting up your accounting system. With the Startup Wizard, we now have a custom web-based checklist that is personalized for your state and entity type.

What this means is that, for example, if you needed to file an Initial List for your Nevada Corporation, our checklist would provide the specific instructions to do that as well as many other important startup tasks.

Features:

Included FREE with every business formation.

Covers steps such as getting a business license or resale permit.

Simple instructions for holding an Organizational Meeting, adopting Bylaws or Operating Agreements and Issuing Stock or Member Certificates.

Five Things You Need Before Incorporating Your Business

So, you want to incorporate your startup? Make sure you take a look at this checklist first – if you forget any of these items, you could be in trouble.

There are plenty of reasons to incorporate your business – but there are also plenty of reasons you might want to hold off doing so, as well. You shouldn’t be too quick to make a major decision out of the blue. Instead, it’s something you need to carefully consider.

And while you think about it, you’ll also need to collect a few things:

The Vital Details

First thing’s first, you’ll need to figure out the following:

Your business’s name and address.

Make sure your business name is unique, and doesn’t contain certain words like ‘bank’ or curse words.

The names and addresses of any decision-makers within your business – who are your founders, executives, and board members?

The physical address of your business in the state where it was founded.

An Agreement Between Decision-Makers

Here’s a question for you – how are you going to handle a disagreement between your business’s founders? What will you do if one person wants to buy out at some point down the line? Who will buy your business, and what will it be sold for? These are all contingencies you need to iron out with your fellow decision-makers before incorporating if you want to avoid a nasty legal dispute down the line. This is typically called a “Buy Sell Agreement” or “Shareholders Agreement”.

An Understanding Of What You Want From Incorporation

There are a ton of benefits from incorporation, but it also comes with a few disadvantages – namely paperwork, fees, and the fact that liability protection isn’t 100% guaranteed, depending on the state you’re incorporating in. Before you incorporate, think carefully about why you’re doing so.

Is it for privacy? Tax benefits? Employee incentives? Make sure you’re doing it for the right reasons, and that there aren’t any easier alternatives available to you.

The Documents

Every state has slightly different rules where incorporation is concerned, including which articles of incorporation you need in order to move through the process. Check your state’s website, and gather all the necessary documentation, including the required forms. Once you’ve done that, you can render the final decision on whether or not to incorporate.

A Knowledgeable Agency To Help You Along

Last but certainly not least, it’s advisable to bring in a third party with a working knowledge of the incorporation process – a firm like MyNewCompany. Founded in 2001, our goal is simple – to make starting a business as simple, fast, and inexpensive as possible. We’ve helped form thousands of companies for our clients, and have grown into one of the largest and most reliable providers of incorporation, LLC formation, and other small business services.

Contact us today, and we’ll help you make your business a reality – without breaking the bank.

If you’re thinking about incorporating or forming your LLC in Wyoming or Delaware, you might be wondering which state to choose and why. Both offer a “business-friendly” environment but each has different benefits–and drawbacks–depending on factors such as your type of entity, your industry and the size of your company. For example, many larger corporations incorporate in Delaware due to its business-oriented legal system, but a one-person corporation may be more drawn to Wyoming’s low fees and taxes.

Although Wyoming has been in the game for a long time and was in fact, the inventor of the American LLC (currently the entity of choice among our clients), you’ve probably heard more about Delaware because it’s the home of many Fortune 500 companies. Delaware has been an incorporation hub since the early 1900’s. It’s big business. Is your company growing fast with high-profile potential and plans to become publicly-traded? Delaware might be the right choice for you.

For the small business owner, starting a Wyoming company has distinct advantages. Wyoming requires a minimal filing fee and the annual report is only $50 in most cases. You won’t pay a franchise tax in Wyoming and there is no state income tax. If you have an existing corporation that was filed in your home state and you’re tired of the state raising fees and changing its business requirements, you can move your company to Wyoming with little hassle.

For a better look at what each state offers, we’ve created this side-by-side comparison of Wyoming vs. Delaware:

Compare

Wyoming

Delaware

No corporate income tax

X

No state personal income tax

X

No franchise tax

X

No state tax on corporate shares

X

X

Low filing fees

X

Low annual fees

X

One-person corporation is allowed

X

X

No annual report required until the anniversary of the formation date

X

Corporation shareholders are not listed with the state

X

X

LLC members are not listed with the state

X

X

Unlimited stock of any par value is allowed

X

X

No minimum capital requirements

X

X

Officers, directors, employees and agents are statutorily indemnified

X

Can adopt a corporation formed in another state

X

Meetings may be held anywhere

X

X

One important thing to remember in choosing is that companies are only authorized to do business in their state of formation. That means that if you incorporate in Wyoming, but your physical business is located in California, the state of California will require you to file additional paperwork to “foreign qualify” your Wyoming corporation as a California corporation before it can operate as a business at home. Yes, it can be confusing. And expensive. That’s why the majority of small business owners file their companies in their home state, unless they have a very specific reason to incorporate in Wyoming or Delaware.

For more information about which state to choose, please visit our state page.

Our main business is forming LLC’s and Corporations so we’ve seen how an LLC formation can go wrong in many ways.

Here are a few we’ve encountered (and sometimes had to clean up either from people or our competitor’s clients):

I filed it myself! – I think the Do-It-Yourself mentality is crucial for a startup with limited resources. However, I think the legal filing that actually creates your company and potentially protects your personal assets (houses, cars, bank accounts, etc.) is an area you might consider going with a pro. Sure, it’s pretty easy to file an LLC in many states, but this is only one step, there are crucial steps you need to follow after the filing that fully form your LLC. In our experience, these after-formation tasks rarely get done.

No Operating Agreement! – OK so you’ve filed your LLC and you’re done right? Most people think so – until the IRS or a process server with a lawsuit shows up. The Operating Agreement is the core document of your company that details things like the ownership percentage of each owner, the operating rules, how profits are handled, how disagreements are dealt with, liability protection clauses, etc. Even worse, you might have a blankOperating Agreement sitting around in an Minute Book or on a hard drive – which is pretty much useless.

Didn’t Hold an Organizational Meeting – Even if you have an Operating Agreement, did you hold an Organizational Meeting to determine ownership percentage, how much cash/property you’re putting into the business? You should hold this meeting which will complete the details of your Operating Agreement, then give each member (owner) a signed copy.

Making the S-Corporation Election – Having your LLC taxed as an S-Corporation certainly has some advantages in the right circumstance, but filing this election (using form 8832) can change how your LLC is run and managed dramatically. For instance, you will probably have to do payroll for yourself (and other members) once the election is made which is complicated and burdensome for a small LLC with limited resources – say hello to monthly deposits, quarterly taxes (both Federal and State).

Selected Wrong Type of Entity on IRS Employer Identification Number Application – Related to the point above, picking the wrong entity type on your FEIN (which determines which tax forms you will use) is not an un-fixable mistake but we see this happening all the time and is something better done right the first time.

How to Prevent These Problems:

Use a professional LLC formation service like ours or an attorney if you feel that you need legal advice.

Make sure you get a personalized Operating Agreement with your LLC formation (we provide this, in editable digital format as well).

Make sure to hold that Organizational Meeting! We give you step-by-step instructions and personalized documents “ready for signature”.

I will be the first to admit that the incorporation industry does not always have the best business practices or clarity. We’re based in Nevada and frankly, some of the other firms that operate here should be shut down or have their owners put in jail (and some have!).

Here’s a list of common scams, lies, deceptions and falsehoods to avoid if you’re looking to incorporate or form an LLC using a service in our industry:

Hidden State Fees: massively inflated state fees. So a company claims to be only charging “$49” to file your company and then hides another $20-50 in the “State Fees” – compare the TOTAL price! The real state fee can be easily verified on each state’s website.

We’ll do it for FREE! Come on you’re smarter than that. This scam typically involves tying you into a “Legal Service Plan” or other type of monthly billed service whereby you will exceed the cost of incorporation by many times. Don’t fall for it.

Lower Service Fees by adding higher shipping fees: Add in $39 in shipping fees and suddenly you’re paying much more for that $49 service. Some companies charge that to the state, back from the state and then finally to you!

Exploding Fees: you’re enticed with 6 months or a year of “Free” or “Discounted” registered agent fees then POW! Those fees explode in the next year or so. We’ve seen “Free” go to as high as $289/year!

“Professional” Registered Agent Service: many services are simply using a mailbox at the UPS Store or a friend’s house! Beside’s not complying with law, if your company is sued or misses an important notice – whoops! You’ve now lost a lawsuit by default judgment and the company is late or in administratively dissolved status because the person wasn’t home that day or the UPS Store doesn’t know how to handle official legal mail.

Incorporate in Delaware, Nevada and Wyoming to save on taxes! Why this may be true for some companies, for the vast majority it is not and actually might involve higher fees for smaller businesses. Read more about this in our article “Which State to Incorporate?“. Again, there are some great reasons to choose those states, but some act like you need to choose those states and in many cases you do not.

Free Bylaws or Operating Agreement! This sounds great, until you find out they are blank. Do you know how long it takes to customize one of those? The chances of somebody involved in a busy startup actually doing that is close to zero. The forms should be personalized from the start.

Encouraging Multiple Entity Strategies: They’ll tell you you need to have a C-Corporation owned by 2 LLC’s, the LLC’s are then owned by each other and then you start another LLC to lease services and supplies back to your Corporation. While this may be a good asset protection strategy for a high-risk or high-growth company – it may not be appropriate for a small startup that doesn’t have any revenue yet – perhaps start with one simple LLC and go from there. Each of those entities will cost money to maintain, pay taxes, etc. and can get expensive quickly.

Outrageously Priced Corporate Kits and Seals: $100 for a minute book? $40 extra for the seal? $40 for 10 Stock/Member certificates? This is madness.

Upsell, Upsell, Upsell: So you’ve ordered your company and suddenly the phone rings off the hook, your email inbox and mailbox are exploding.

Here’s what MyNewCompany.com, Inc. does to bring some sanity back to this industry (and hope others follow our lead!):

We don’t hide state fees. Verify our fees against the state.

Regular Shipping is free, FedEx is reasonable and priced at about our cost.

Pricing is upfront for any recurring service, guaranteed not to change.

We only use real offices for Registered Agent Services staffed by real people that know how to handle this important mail. This includes scanning, uploading, emailing, phone notification and FedEx of important documents.

We tell the truth about Delaware, Nevada and Wyoming as shown in the article linked above.

We personalize your Bylaws and Operating Agreements and give you a digital copy to easily edit.

You know how to find the Free Stuff – this isn’t rocket science, do a google search for “free accounting software” for example.

We’re “Startups Made Simple”, not “Multiple Entity Strategies for your One Person Business that will cost 10 times an LLC”. You can order multiple entities from us of course, but we don’t encourage or advise our clients on this one way or the other. Simple is usually best when starting out.

Our Corporate Kits are $69 or $79. This includes the Minute Book, the Seal, 20 Stock Certificates and shipping.

We don’t sell your info. If you opt-in to a service (like our email newsletter) you can easily unsubscribe. We protect our clients and our Privacy Policy reflects that.

I hope I’ve given you a good overview of the industry and what to expect. Let us know any other scams or lies in the comments and we’ll update this post.